Bilia AB

STO:BILI A

Earnings Call Transcript 2022-Q4

[Operator]

Welcome to Bilia Q4 Report 2022. [Operator Instructions] Now I will hand the conference over to Carl Fredrik Ewetz, Head of Investor Relations. Please go ahead.

[Carl Ewetz, executive]

To that, and again, welcome to Bilia's Q4 results presentation with CEO, Per Avander; CFO, Kristina Franzen, and myself, Carl Fredrik Ewetz responsible for Investor Relations M&A. We go to the next slide. And as you can see, the agenda is rather us straightforward. I will start talking about the current market environment. So I think we go straight to that, slide 3.Per, I'll leave the word to you.

[Per Avander, executive]

Thank you very much, Carl Fredrik. Yes, the current situation in the car industry, the demand in the service business is still stable and at a good level. We have a high order backlog for new cars, both Bilia, but all our competitors as well in all our countries. One example in Sweden is the backlog for the total market in Sweden is approximately around 150,000 new cars in Sweden for the moment. We have seen a weak demand for new cars. So bear in mind, registrations of Cars 2023 will be one side, but order intake is another. So registrations and order take maybe will be a little bit different this year.The stock of used cars has increased because of better availability of new cars due to changes in the tax system, especially in Sweden and Norway in the end of the last year so all in the car industry built up their used car stocks. There is an ongoing consolidation in the industry. One example is BMW in Sweden. If you go back 15, 20 years ago, it was around 15, 20 owners of BMW dealers in Sweden. And today, it's only 6, 7 owners. So there is some consolidation still in the industry. The industry is changing. The interest of battery cars is huge in our countries.In Norway, the battery car is over 90%, if we include pure electrical vehicles, [indiscernible] hybrids and hybrids. And pure electric, it was around 80%. So the Norwegian market is the best in Europe. In Sweden, we are number 3 in Europe -- so around 65% is a battery car all registrated cars last year. It's a lot of launches of many new brands, especially from China. So we see a lot of new brands, BYD is one, Xpeng, we will take up that in March now in Sweden and [ Aura ] is another new brand for us. We will be importer and dealer in Norway.Please move to the next slide. The net turnover increased due to availability of new cars and organic growth in the Service business. We report earnings of SEK574 million with a margin of 5.5%. It's the second best quarter ever, only SEK3 million from the best, which you can see on the right-hand side, it was 2020. But if we take off some divested operations in Norway and Sweden, we sold some of our Volvo business in Sweden and in Norway. So if we add that, we will be SEK80 million better. So the best quarter ever, quarter four 2022.Please go to the next slide. The Service business, as I told, we had organic growth by 10% with a result of SEK368 million. It's a higher result year-over-year within the Service business, considering [ divest ] operations. If we adjust for that, the profitability is SEK50 million better. Still, we have a good demand in the service business. And in quarter four, we had a lot to do in our delivery workshops. In the biggest outlets we have, we have separate service workshops and the delivery workshops. So we delivered a lot of new cars. And at the same time, we get back many used cars and all of them need service.Next. As I told, we have a really high backlog of new cars, 26,000 new cars. And if you go back a couple of years, a normal backlog for Bilia is around 12,000 to 14,000 cars. It's close to double we have in this year 2023. We had earnings of SEK240 million, and most of it is coming from new cars. We delivered a lot of new cars, 29% higher and used car we declined a little bit to around 4% lower. So in the quarter, we reduced the backlog with 3,000 cars. But as I told, it's a really, really high backlog we have into January 2023. The order intake is weaker on new cars in all our countries, and it's the same for all our brands for the moment.

[Kristina Franzén, executive]

If we then move into the financial position; we had during the quarter a negative operating cash flow of SEK160 million. This was caused by a higher working capital, mainly inventory and net accounts receivables caused by high deliveries of parts during the year-end, as Per mentioned before. During the quarter, we also used around SEK650 million to acquire new businesses. It was one BMW Mini dealer and one Volkswagen Audi dealer, both located in Sweden. Together, it meant that we now at the end of the quarter utilize our credit limits by around SEK640 million compared to actually having a receivable on our banks of around SEK150 million at the end of the third quarter.Our available credit limits have been extended or increased by SEK800 million during the quarter to enable us to repay the bond loan of SEK800 million with maturity in October 2023. And that would be in case we do not find one market to be attractive enough to refinancing the bond at that point in time. In total, it resulted in a net debt-to-EBITDA ratio of 0.8x. This is higher than the previous quarters, but it's still on a low level, considering that we have a target of 2.0x. And then the Board proposed an ordinary dividend of SEK8.80 per share. It means that we have increased the dividend by 10%, which is in relation to -- which is in level with the inflation rate.The proposed dividend represents 50% of our earnings per share, which is also in line with our financial target to distribute [indiscernible]. And the proposal from the Board is that the dividend should be paid in four installments during the year, starting in May and might then actually flow over to the next year. Yeah?

[Per Avander, executive]

Okay. We go further with the outlook for quarter one 2023. In all other countries, the consumer confidence is really low. If I will be a little bit optimistic, I can say the last month, it's a little, little better, but really, really low. The private consumers for the moment, they are a little bit confused. So private leasing has been a really, really good business for Bilia and for the customer the last years. But now it's more a wait and see for the private consumers because the inflation and the interest is raising a lot to a monthly cost for the private consumers is higher. So we don't sell so much private leasing for the moment. The fleet business is much more stable.So we see for this year, if you have a company car, you change it when it's time for that. So much more stable when we are talking fleet compared to the private consumers. We have January. We are finished with the January. So we have seen a good demand still in the service business. Our customers, they haven't closed their wallets. So we have a lot to do in our workshops for the moment. And today, we have a little bit better level of used cars, more what we can say, a normalized level. And I think it's good.If we look back in some recessions we have had, one is 2008, private consumers, they stop to buy a new car, but they like to buy a secondhand car. So for us, it's really good to have a little bit higher level of used cars in stock. So we see for quarter one and for quarter two, lower order intake for new cars in our countries. It's the same in Luxembourg, Belgium as we see in Sweden and Norway for the moment.Carl Fredrik?

[Carl Ewetz, executive]

Per touched upon it earlier when it comes to electrical cars. And due to the reduction of climate bonuses and subsidies for chargeable vehicles in our markets, we do see less momentum in people switching to chargeable or electrical cars compared to what we saw in, for example, Q4. But with continued pent-up demand combined with a wait-and-see mood among private and fleet clients, we do expect demand and interest to remain when it comes to switching to a more sustainable alternative, i.e., chargeable cars for electrical cars.Moving over to opportunities in M&A. Per mentioned it earlier. We want to be part of this. But also here deteriorating economic conditions have, to a certain extent, change the dynamics when it comes to M&A in our industry with higher financing costs and increased requirements for investment, we believe we can discern gradually lower price levels in the market, which makes us see potential opportunities ahead.And we want to continue to be part of an ongoing consolidation, but obviously more prudent today. Looking at the cost saving program, it's on track, like we said in Q3. We launched it in mid last year, and we did it for -- we're expecting tougher market conditions. And this program is going according to plan, as I said, and is designed to reduce costs without sacrificing the quality of service.And I think that means the operator, we are ready for questions.

[Operator]

[Operator Instructions] The next question comes from Andreas Lundberg from SEB.

[Andreas Lundberg, analyst]

Can you hear me?

[Per Avander, executive]

Yes, we can.

[Andreas Lundberg, analyst]

Cool, great. Starting off with working capital. Can you give more color on the movements there?

[Kristina Franzén, executive]

So let's see what you said.

[Andreas Lundberg, analyst]

I mean, whether it's new cars or how should we see this?

[Kristina Franzén, executive]

Yeah. I think it's a mix up of both new car and used cars, right? We did get a lot of supply of new cars also for the high deliveries during -- or in connection with year-end, but that is also then an increase of used cars. They go little bit hand-in-hand, of course. When we deliver new cars, we also get the used cars in many cases in return.

[Per Avander, executive]

So we don't build up the stock of new cars, all of the cars is coming home is they are sold.

[Kristina Franzén, executive]

So they are, you can say, on a temporary basis preparation before they are delivered to the customers [Technical Difficulty].

[Andreas Lundberg, analyst]

Okay, so it's a timing effect more or less.

[Kristina Franzén, executive]

It's a timing effect, yeah, and that also goes hand in hand with the net receivable increase, as I mentioned as well.

[Andreas Lundberg, analyst]

And Per, you touched upon the car registrations for '23 versus order intake. I mean how do you think about deliveries in '23, given your order backlog and certain constraints still?

[Per Avander, executive]

Yes. Our manufacturers, they send a lot of cars to Sweden and Norway in the end of the year 2022 because, as I said, a change in the tax system. But still, we see it's a lack of components, especially semiconductors. So we don't see what we call it a catch-up effect in quarter one or quarter two. So if you order a car today, it's a long delivery time still. So they don't -- our manufacturers, they don't have solved the problem with the lack of components.

[Andreas Lundberg, analyst]

How long do you think it will take to deliver on your order backlog?

[Per Avander, executive]

[indiscernible] question. I read a couple of days ago that the manufacturer bond loan, they closed on an factory and a couple of days in [indiscernible] in January. We are following the close, but it changed from day-to-day. So I don't have an answer. But I guess it will take all 2023, then we maybe have a longer backlog again.

[Andreas Lundberg, analyst]

Okay, cool. And on the -- you talked about lower interest or leasing among private consumers, what implications do you see on that?

[Carl Ewetz, executive]

Can you say it again a little bit higher?

[Andreas Lundberg, analyst]

I mean you talked about lower interest for leasing, especially from private people, private consumers, what kind of implications do you see for that? Are those people more looking for used cars or not buy anything at all?

[Per Avander, executive]

Yeah, the monthly cost has increased with interest rate and in the past for pure electrical vehicle, you have a support from the government. Now when you take off it so if you pay in the past SEK5,000 per month for a new car, maybe you pay SEK7,000, SEK8,000 today, so it's much more costly today. So we don't know. But our feeling is, and we can see in January, the demand for used cars, it needs to be better if I compare with quarter four last year and quarter three last year. The interest is higher for used cars for the moment. And that is the private consumer. They change from private leasing to buy a used car instead.

[Andreas Lundberg, analyst]

You had a very high profitability in used cars, especially in 2020, 2021 to some extent in '22 as well. What's your outlook for the profitability on used cars into 2023?

[Per Avander, executive]

We don't have a forecast for that. But still, we can see the demand is quite good, and the margin is still quite good as well, but we don't have a forecast for -- so -- and as I said in our presentation here that we like to have a little bit more cars in stock -- used cars in stock, because we think the private consumer will buy a lot of them. But we don't have a figure for 2023.

[Andreas Lundberg, analyst]

Yes. And lastly, my last question is used car inventories. I think you said you have decent levels, but what about the market levels of used cars?

[Carl Ewetz, executive]

Market level of used cars.

[Per Avander, executive]

Yeah, the market level if you go to Sweden, it has increased for all brands and our competitors as well. In Norway, we often built up our spot for used car from August to December. That way we have a little bit too many cars in the end of the year. But now we see we reduce it again. And we follow the total market of used cars in stock, and it's a higher level because one year ago, we talked about the lack of used cars in stock, but much more normalized levels of used cars today.

[Operator]

[Operator Instructions] The next question comes from Mats Liss from Kepler Cheuvreux.

[Mats Liss, analyst]

Congrats on a very strong set of numbers. And I just -- I have a couple of questions. First, looking at the EBIT earnings there, I mean you performed quite well in all markets, including Western Europe also, is it a new level there that we should expect to be continued?

[Per Avander, executive]

Was that the question? But bear in mind that we often talk about in the end of the year, we had some volume bonus for new cars -- and some years, we reached some years we don't. So in Western Europe, we have a really good profitability in new cars in the end of the year. So that is a yearly bonus. So you can't say we have the same profitability now in quarter one, if I give them some guidance here.

[Kristina Franzén, executive]

Probably a little bit on the high side -- if we talk a sustainable level.

[Mats Liss, analyst]

Good. Then on service, I guess you have a mixture of new car deliveries and used car service as always, 10% organic growth is strong, so to speak. Is it more related to the deliveries of new cars or is it sort of an indication also that you gain market share in the used car part of the business, could you give some flavor there?

[Per Avander, executive]

We don't have a mix of external customer and internal, what we call it customer. But as I have told you in other quarters, we took the decision in Bilia. We don't have full activities in our delivery workshops, but still, we had the mechanics. So they work maybe in 65%, 75% of the total capacity. But in the end of the last year, we had full speeding in our delivery workshops is one. And in other way, as I told you in the presentation here, when we deliver out a lot of new cars, we get a lot of used cars and they need service as well. So it's a double effect you can call it. But we see external customers as well. They are coming -- they don't close their wallets. So we have good booking times in our workshop for the moment now in January, February.

[Mats Liss, analyst]

Great. And well, you touched upon the consumer confidence that weakens. And on the company car side, I guess, well, do you see any changes there or is it business as usual.

[Per Avander, executive]

No. Often, the fleet business is much more stable when you have a recession, we can see it when we had the IT crash 20 years ago, we can see it 2008, 2009. So the activity is still there for the fleet business. So the volatile is much more for the private consumers. But what we can see our customer, when you have really good, what you call it, yeah, yeah, yeah, financial situation, really good. The employees, they can take -- they choose a lot of cars. But the fleet business, when you have a recession, they often go to more to Volvo, BMW, Audi old brands, stable brands. You understand you receive your value. So often, the -- what I call them old brands, they take market shares when you have a recession. So it's really good, for example, for Volvo when you have a recession, they often takes market shares.

[Mats Liss, analyst]

Interesting. Then I guess Tesla moved ahead and cut their prices somewhat and Ford followed them. And what do you expect to -- this will have a sort of impact on -- well, both new car prices, of course, but on the used car side?

[Per Avander, executive]

Yes. What we can see now in our manufacturers, they say, we don't follow it. Only one brand is followed and reduce the price. It's Ford Mustang for the moment in Sweden. And remember that Tesla, they increased the price a lot. So half of the reducing of the price now is coming from -- they increased the price in 2022. So the first, they increased the price and then they reduced the price so the level of the price now, if you take off the climate bonus as well so it's the same price.But we looked into our Stockholm used car directly, and we had only 10 Tesla in our stock. So their residual value will decline a little bit. So let us see what happened. But our manufacturers, our brands, I mean, they wait and see for the moment. But I read that Elon Musk, he said when they reported their results they have a huge interest of their cars for the moment in U.S. So maybe we can see it. But it's too early to see if they take some market shares.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Carl Ewetz, executive]

Okay. Thank you very much for listening into our Q4 results presentation, and thank you for that. Goodbye.

[Per Avander, executive]

Thank you very much.